Cash Reigns in India

Cash withdrawals have reached a record high in India, with the average withdrawal rising to nearly 5,000 rupees (around €57/US$68) in August, compared to around 3,450 rupees in 2018. The Times of India also notes cash in circulation has reached a new peak, now amounting to 12 percent of India’s GDP (up from 10.7 percent in 2018).

While there was a temporary slowing of ATM transactions in the first few months of India’s COVID-19 lockdown, withdrawals later rose rapidly, soon outpacing pre-COVID levels. Rustom Irani, MD and CEO of Hitachi Payment Services, describes cash as ‘an integral part of the Indian economy’ and noted that ATMs are ‘an important touch point that facilitates easy access to cash for the populace at large.’

Another notable trend is fewer small cash withdrawals, likely driven in part by people’s preference to stay indoors when possible and thus looking to withdraw all the cash they will need for a week at a time, rather than making frequent trips to ATMs.

It is clear that cash remains king, even four years on from India’s controversial demonetisation policy, which saw high-value notes invalidated overnight, resulting in widespread economic disruption and serpentine queues at banks as people rushed to exchange notes. The policy’s goals—first to bring undeclared or so-called ‘black money’ to light, then combat counterfeiting and at last increase uptake of digital payment methods—seem to have met with little success.

According to the Reserve Bank of India (RBI), more than 99 percent of invalidated banknotes returned to the banking system, indicating that cash was not the hoard of ‘black money’ that had been imagined. Also, most fake notes seized post-demonetisation were of lower denominations (typically 100 rupees) than those that had been invalidated (500 and 1,000 rupee notes).

The dominance of cash is hardly surprising, given the large rural population in India and its caste system. For many, cash is the only way to conduct financial transactions, thanks to its ubiquitous availability, ease of use, immediacy and reliability. For many women specifically, it is the only way to achieve a tiny sliver of independence. The cash hidden in coffee tins and cookie jars is used to put food on the table, and buy children’s school books and the odd household appliance to make life a little easier. Furthermore, when compared with the constant tracking of digital transactions, and the fact that industry experts claim a 30 percent failure rate for UPI transactions, it’s easy to see why India’s payment method of choice is cash.